Thomas Van Dyck, CIMA®, a Managing Director/Financial Advisor with the SRI Wealth Management Group at the World Bank of Canada, has been a leader in socially responsible investing for more than 30 years. He consults on institutional and individual client assets, incorporating environmental, social and governance factors in investment decisions. Van Dyck also founded the shareholder advocacy As You Sow Foundation in 1992 and is active in the “Divest Invest” movement. Last year, Bioneers spoke with him about fossil fuel divestment and the clean energy revolution.
Bioneers was honored to host Thomas Van Dyck at the 2017 conference. Below is a video and transcript of his keynote on the divest/invest movement and the power of the clean energy revolution.
Thomas Van Dyck:
It’s wonderful to be with you here in the republic of California. Before I moved here 34 years ago, I was a no-nukes activist back East. I worked for the Fund for Secure Energy, and we raised money to do media to close down your local nuclear power plant. How many of you were no-nukes activists back in the day? Excellent. My campaign was Indian Point, which was located 30 miles upriver from Manhattan. Now a few years earlier, Three Mile Island had its meltdown, so they required people to evacuate from 10-mile zones, 20-mile zones, and 30-mile zones around their nukes. In the case of Indian Point, there were millions of people located within 30 miles of Indian Point.
The Shoreham nuclear power plant was actually completed, loaded with rods—It wasi on Long Island—but because you couldn’t evacuate Long Island, it never started.
Do you all remember what the industry experts said about nuclear power back then? Remember what they said? What did they say? Too cheap to be metered. Right? Nuclear power was to be too cheap to be metered.
In fact, nuclear power is the most dangerous and expensive way to boil water on the planet. The industry experts used to say to me, “Okay, hotshot, so if you’re going to grow an economy, how are you going to do it without growing your power source? How are you going to do it without nuclear power?” This was their line. They said this is how much power you need to grow an economy. And I said, Well, do you know who this young man is? Who all know who this is? Let’s hear it. Who is it? Amory Lovins. Absolutely. It’s a Bioneers crowd. Of course you know who he is.
Amory wrote a paper in 1976 that said in fact, he didn’t think you needed to grow your energy source to grow your economy. Using soft technologies, which was energy efficiency and renewable energy, you actually could still grow your economy and not expand your energy base. Who was right? It’s a loaded question for Bioneers. Amory was right, as it turns out.
Now the reason I tell you this story is because industry experts consistently underestimate the power of disruption and how quickly it can take place. They make very bad predictions, like the time that McKinsey and AT&T in 1985 predicted there would be 900,000 cell phone subscribers by the year 2000. Industry experts. What was the actual number? 109 million. They were off by a factor of 120. Think about that.
In addition, when technology disrupts an industry it happens much quicker than what they expect. Like the time the horse and buggy and the car came into place. This is a picture of Manhattan in 1900 on Fifth Avenue on Easter morning. On the left-hand side, the circle is the car, the red circle. Horses and buggies are everywhere else. A mere 13 years later you can’t find a horse on Fifth Avenue on Easter morning. Think of how fast that took place.
Or the time with digital imaging entering the film era. Remember Eastman Kodak? Eastman Kodak used to be a Dow-Jones industrial company with a $30 billion market cap for decades. The digital camera came into place, then the smartphone. Now Eastman Kodak is down 94 percent. It’s a small company in Rochester, New York. How long did that take? Nine years. Nine years.
Also cell phone versus smartphone. Nokia and Blackberry, where are they today? It’s Apple and Samsung. How long? Eight years. Speed of disruption.
This is an index of all the coal companies over the last nine years. It’s down 70 percent in nine years. Not a very good investment if you’re looking at investing in coal.
When the divestment movement started with people like Ellen Dorsey at Wallace Global, who is here today, by the way, and who will be presenting later this afternoon and talking about some of the work they’re doing with the Dakota Sioux in putting wind farms in where they were building the Dakota Access pipeline. But when Ellen Dorsey and Wallace Global, and her grantees 350.org, Carbon Tracker, The Park Foundation, University of Dayton, the Educational Foundation of America and Rockefeller, launched divest/invest, it was $50 billion, as Kenny was mentioning, in September of 2014. And today there’s over $5 trillion of assets that have divested. How many of you were part of that divest movement in their college campuses and universities? Excellent. Keep doing it!
See, here’s some of the arguments that we used to point out to people who own carbon in their portfolio, the risk of owning fossil fuels. First is stranded asset risk. This is the great carbon tracker paper that Bill McKibben made famous in his Rolling Stone articles. Carbon Tracker, by the way, is a group based in London, all ex-oil analysts. And they said that you have to keep 80 percent of the reserves that are reflected on the balance sheets of the oil companies today in the ground in order to keep the temperature of the planet below the 2 degree Celsius level that everyone in Paris agreed that we have to achieve.
So the battle that’s taking place is are the oil companies going to be allowed to burn that 80 percent and transfer those costs on to who? Us, the taxpayer, or are they going to stay in the ground? Something’s gotta give. That’s the battle that’s taking place right now, and that reserve is priced into their stock today. and that’s a risk.
Litigation risk. You’re here in Marin County. You may not know it, Marin, San Mateo, Imperial County, San Francisco and Oakland have all filed suit against the oil companies for climate damages. And I’m sure that Sonoma and Napa will join them after the fires. But those suits were just filed in the last month. Where are they going to go? Are they going to go the way of tobacco? That’s a huge liability if you own fossil fuels.
Carbon pricing risk. Here in California we have something called cap and trade that puts the price of carbon at about $15 to $16 a ton, today. We know we need carbon prices at about $50 a ton in order to create innovation. Since we’re cutting everyone’s taxes, the government actually needs a revenue stream to come in. So it might not be a bad idea to put a carbon tax on at $50, increase it $10 a ton for the next 20 years, so that everyone knows where it’s going to be priced and they can allocate capital accordingly.
Regulatory risk. Now we know that Pruitt has trumped the regulatory situation because he’s gutting the EPA. Right? But it’s nice to know that regulatory cannot stop technology innovation. It can slow it down. It can speed it up, but it can’t stop technology’s disruption from taking place.
Peak demand versus peak supply for oil. The oil companies think they’re going to keep looking for supply until 2050. They don’t think peak demands going to happen. Personally, we think peak demand for oil is going to happen when we move to electric cars.
Technology risk. We’re going to go into some detail here, because technology risk is the biggest disrupter to the fossil fuel industry today, and then investment risk. This is a busy chart. In the upper lefthand corner it shows solar, but it shows that solar has gone from $3.80 a watt to 40 cents a watt in price in less than 10 years. Massive adaptation has happened as a result.
Wind power’s blow 3 cents a kilowatt hour. All externalities priced in. LED lights have dropped over 85 to 90 percent. And battery storage, the Holy Grail, has dropped almost 85 percent. Why is that so important? Because when the sun and wind are not shining, if you can store that electron in a battery, you can release it during those times when the sun and wind aren’t shining. You need to get the price of battery storage below $200 a kilowatt hour, and this is according to Jim Rogers, who is the former CEO of Duke Energy, the big North Carolina utility, in order to make it utility scalable. Well, when Elon finishes the plant in Nevada next year, the price for battery storage is below $180 a kilowatt hour. When the Chinese and the Koreans finish their gigaplants, by 2020 the price will be below $100 a kilowatt hour. Think about that from the idea of scalability.
Now, let’s look at the arguments for the invest side, as Kenny mentioned, because that’s a disrupter. And let’s frame it in a way that the other side can hear it, because these are the arguments they make.
National security. Microgrids are much safer than centralized grids in two ways. The CIA and FBI worry extensively about the centralized grid structure in United States. Why? Because it’s easily hacked. Microgrids are much more difficult to hack. In addition, centralized grids, you can have accidents, climate disasters—look at Maria taking out Puerto Rico or look at that tree that fell across the power line in Ohio about 15 years ago, took out the whole East Coast and almost melted down a nuclear power plant, by accident, not by design. So microgrids, from a national security perspective, are much safer.
Immigration. Access to affordable, clean, sustainable energy is a human right. There are a billion people on this planet that do not have access to power. If we improve the standard of living where people live, that is a right they’re entitled to have.
Jobs. Let’s talk about jobs. Solar jobs are over 200,000 in United States and they increased by over 25 percent in the last year. Wind jobs, almost 100,000, increased by 16 percent. Coal jobs contracted by about 15 percent. What’s the beautiful thing about solar jobs? They’re in every single Congressional district. Right? You don’t need an oil reserve or a carbon reserve to go mine it. They are in urban areas; they’re in rural areas; they’re in red states; they’re in blue states. It’s every single district, and we need to be putting solar on every single rooftop, whether it’s commercial or housing or in the fields. These are high-paying jobs. They’ll be around for 20 or 30 years. So the job creation is much better on the renewable side.
Let’s look at healthcare costs. We as the US taxpayer give the oil industry $25 billion in subsidies to go drill off our coasts, in depletion allowances every year. In return they give us over $200 billion of healthcare costs.
If you go to a town in Fontana, in California, and you ask the gradeschool kids there how many of their family members have been to the hospital in the last year because of respiratory problems, because Fontana’s between two fossil fuel plants, and they breathe the air every single day that we’ve been breathing here in Sonoma and Napa, and Marin and San Francisco for the last two weeks. They breathe it every single day. If you ask that elementary school kid how many have been there, every one of them will raise their hand. Clean renewable energy will solve that problem because those externalities will not be landing on our balance sheets and in their lungs and killing them.
Now let’s look at what the market’s doing. Because businesses who have electricity as their second highest cost are saying, Well, Mr. CEO of solar company, can we go ahead and lock in the price of energy for the next 20 or 25 years by getting a power purchase agreement at 6 cents a kilowatt hour? Solar CEO says, Absolutely, lock in your cost. Done. Wind, 3 cents. Done. You go to a CEO of a natural gas company or a coal company and say, Can we lock in a price? They say, Absolutely not. Why? Because the commodity goes up and down. You can’t predict that.
Now if you’re a large company, like a Salesforce or Apple or Microsoft, where you have huge server farms, you want to manage that second largest cost of human capital on your balance sheet. And the best way to manage that is to lock in that price so you can then allocate capital more efficiently over the next 20 years to other parts of your business. Why wouldn’t you want to do that? It’s the best way to run a business. It’s the best economic way to run a business. In addition, you get the benefit of trying to help solve climate change. It benefits your employees and benefits your shareholders. So you’re seeing hundreds and hundreds of businesses, regardless of regulations, moving to solar and wind because it’s the best business decision that they can make. The economics are driving their decisions.
This transition is not just going to be in the solar and wind space. It’s going to affect every single element of our economy. It’s going to be in the water area where we do infrastructure in pumping technology. It’s going to be in the area of energy, as we just talked about with grid optimization and microgrids, battery storage. Transportation. We need to view the car as a mobile computer. That’s what’s going to happen. Think about that. Also, in areas of building, LED lighting, HVAC systems, waste reduction, agriculture, it’s going to be across the entire economy.
Let’s talk about investments because the experts would say to you, when we started the divestment campaign, you can’t wipe out an entire sector of the S&P 500. You’ll lose diversity, you’ll increase your risk and you’ll lower your return. Right? How many times have you heard that? Countless times. Well let’s just look at what happened over the last five years.
These are all the sectors of the S&P up here. Energy, by the way—Oh, by the way, energy—there’s not a single renewable energy company in the S&P 500 energy sector. It’s 100 percent carbon. Oil and gas companies only. Alright?
Look at the return for this year, down 12 percent through June. Not too good with the S&P up. By the way, energy’s a part of the S&P. Up 27 in 2016. That’s pretty good. Down 21 percent in 2015. Wow, that’s volatility. Up down, up down. How’s it done over the last five years? 1.6 percent. How have the other sectors down? Quite a bit better.
In fact, energy is the worst performing sector in the S&P 500 over the last five years. It’s just done a little bit better than bonds, which is at the bottom with a lot more volatility. So if you’re about investing, you’re about risk and return, you’re getting huge risk with no return in energy. This has been a tail wind for everyone who divested over five years ago. It’s helped the return.
Now this is a very, very busy slide but what this shows—well, that’s five years, let’s take it back 10 years. Okay. Let’s go back to the peak of the market in 2007. How has energy done? 9.7 percent total return, not annualized, total return over the last decade—9.7 percent. The S&P has almost doubled over that same time frame, with energy as part of the component.
In addition to it not performing well, it’s the most overpriced sector, which is the circle in the green, in the S&P 500 today, based on four percentage ratios. Not only has it not performed, but it’s also the most overvalued sector today. So, if you haven’t divested from fossil fuels, my question for you is: What is inspiring you to underperform? Right? What’s inspiring you to not keep pace with the benchmarks?
And for all those—I’m sure everyone here has divested, but for those who haven’t, go to FossilFreeFunds.org, or the As You Sow website, look up your mutual fund, find a five badge fund that’s fossil fuel free, integrates environment, social governance factors, and join the divestment movement and get out of fossil fuels. It’s not helping your return or retirement at all.
Now one thing we haven’t really talked about directly are the costs of climate change—droughts, floods, fires, hurricanes, tornadoes. Just in the last year, these are all the climate disasters with a billion dollars or more in damages in the United States, only in the first nine months of this year. It doesn’t even have Nate on it or the Sonoma fires. In fact, if it had that on it, we would have 17 $1 billion climate disasters—17.
If you look at this line, look at in the last five to 10 years. How many billion dollar climate disasters have we had happening? The cost estimated for this year with Irma, Maria, Sonoma is about $170 billion in unbudgeted expenses. It’s no wonder FEMA’s broke. Now not all that lands on the US taxpayer’s balance sheets, but a big chunk of it does. Unbudgeted expenses. The discretionary part of the US budget is $1.1 trillion, so if you’re having on average $100 billion hitting unexpectedly every year, that’s more than we spend on education and environment.
Now Jay Inslee said, he’s the governor of Washington State, he said, you know, we’re the first generation to understand the risks of climate change and we’re the last generation to be able to do anything about it.
Remember when I mentioned what those industry experts said in their predictions earlier? So, the WEO, it’s the World Energy Office. It’s part of the International Energy Association. In the lower lines there, in the kind of Dutch orange and yellow, show in 2002 and 2006 where they predicted solar would be. The red line is actually what happened. Same thing with wind. Now the dotted line is like what will be our reality. What will be our reality?
This is electrical cars. The oil companies are all the lower lines there—Exxon, BP, OPEC. In fact, OPEC just doubled their line in the last couple of months. It was way down before. Bloomberg actually shows a little bit more of a real ramp, but what is going to be our reality when it comes to the red line?
In fact, you are the red line. You are what makes the red line a reality. You are the people who install solar panels on your house. You are the people who buy LED lights and energy-efficient appliances. You are the people who drive electrical cars and put battery storage on garages. You are the people investing in clean tech and divesting from fossil fuels. You are the people that believe investment is the economic expression of your thinking and your values. You are the people that vote for progressive politicians that are going to get us out of this mess and are going to take it to the streets and the public utilities commission. You are the people that make the red line happen.
Collectively, collectively. Collectively. Let us do what Bioneers teaches us, to use what nature provides us to make our reality carbon free with power that will truly be too cheap to be metered. And in the theme of this year’s Bioneers, let’s rise up and make the red line a reality for the seven generations that follow us.